威爾豪瑟 (WY) 2012 Q1 法說會逐字稿

Good morning, my name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Quarter One 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the conference over to Kathryn McAuley, Vice President, Investor Relations. Ms. McAuley, you may begin.

Thank you, Nicole. Good morning. Thank you for joining us on Weyerhaeuser's First Quarter 2012 Earnings Conference Call. This call is being webcast at www.weyerhaeuser.com. The earnings release, analyst package, and web slides for the call can be found at our website or by contacting April Meier at 253-924-2937. Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements, as forward looking statements will be made during this conference call.

Joining me this morning are Dan Fulton, President and Chief Executive Officer, and Patty Bedient, Executive Vice President and Chief Financial Officer.

Additional information has been added to the analyst package and web slides. This includes EBITDA and operating margin data, as well as business-specific metrics. In the web slide package, the charts and tables have been redesigned. I will note some of the graph changes as we review first quarter results. Corporate and Other has been renamed Unallocated to more accurately reflect the nature of these items. Chart 13 details Unallocated items. We hope these changes help you in your analysis of Weyerhaeuser.

As summarized on chart 1 this morning, Weyerhaeuser reported first quarter 2012 net earnings of $41 million or $0.08 per diluted share on net sales of $1.5 billion. Earnings for the first quarter include after tax gains of $32 million from Special Items. A GAAP reconciliation of earnings before Special Items can be found on chart 2. This table now details Special Items on a pre-tax and an after-tax basis. The Special Items for the first quarter are -- a gain of $34 million or $0.06 per share for our post-retirement plan amendment; a gain of $8 million or $0.02 per share for income tax settlements; and a charge of $10 million or $0.02 per share for restructuring, impairments, and other items. Excluding these items, the Company reported net earnings of $9 million or $0.02 per diluted share.

Turning to our business segment discussion, my comments reviewing the first quarter of 2012 refer to changes from the fourth quarter of 2011. This will be the same for all segments. Beginning with Timberlands, charts 3 and 4, the graph on chart 4 has been redesigned. The West and the South are now on separate charts, each graphing third-party log sales versus realization. Graphs on intersegments log sales West and South and fee harvest volume West and South have also been included. Timberlands contributed $71 million to pre-tax earnings; $1 million more than in Q4. Income from operations increased $13 million.

This increase was primarily due to lower equipment and road maintenance costs in the West. This increase was largely offset by a $12 million reduction in earnings from the disposition of non-strategic Timberlands. Western log sale volumes were flat. Third-party sales volumes declined 6%, primarily due to fewer log sales to China. Log exports to Japan, however, have increased. Japan accounted for 78% of log exports in Q1 versus 68% in Q4. Exports to Korea, a small market, also increased.

Price realizations for logs in the West declined less than $1 per thousand cubic meters. Price realizations for logs exported to Japan slightly increased. Southern log sales volumes were flat. Third-party sales decreased as internal sales increased due to strong Southern yellow pine lumber demand. The combined fee harvest volumes of the West and South rose 2%.

Wood Products, charts 5 and 6 -- chart 6 has been reorganized into four product graphs of price and volume. First quarter operating income improved $39 million from fourth quarter. Sales volumes and price realizations increased across all product lines. Operating rates were higher. Lumber volumes were up 9% and lumber prices increased 5% or $15 per thousand board feet. Oriented strand board volumes were up 9%. Price realizations rose 14% or $24 per thousand square feet.

Engineered wood solid section volumes increased 16%. Solid section price realizations were up 3%. Engineered wood TJI volume was 7% higher; TJI prices increased 2%. Manufacturing costs were lower due to more mill up time and product throughput. Trade expense increased, largely due to higher shipment volumes and an increase in fuel cost.

Cellulose Fibers, charts 7 and 8 -- pulp sales volumes and price realizations are on the same graph on chart 8. The pre-tax contribution to earnings from Cellulose Fibers decreased $90 million in Q1 from Q4. Average pulp price realizations declined 9% or $76 per air-dried metric ton. Pulp sales volumes decreased 4%. Q1 had two scheduled annual maintenance outages totaling 27 days of down time. There were no scheduled maintenance outages in Q4. Due to the scheduled downtime, maintenance costs increased significantly and pulp production volumes were 5% lower.

Real Estate, charts 9 and 10 -- chart 10 contains graphic representations of the metrics formerly presented in a table format. The pre-tax contribution to earnings from Real Estate declined $49 million from fourth quarter. First quarter is seasonally the weakest quarter of the year for single-family home closings. In Q1, single-family home closings declined to 349 from 582 in Q4. Closings were 4% lower than a year-ago first quarter.

The average home sales price was $376,000; 6% lower than in Q4 and 10% below the first quarter of 2011. Gross margins decreased to 17% from 25% in Q4. The gross margin was 22% in Q1 2011. Price and margin declines were attributable to mix. The cancellation rate dropped to 10% from 18% in Q4. The cancellation rate was 12% in the year-ago quarter.

The backlog increased from 429 single-family homes in Q4 to 777 homes; however, the average price of single-family homes in the backlog has decreased to $371,000 due to mix. The backlog at the end of the first quarter last year was 611 single-family homes. There was $1 million in land and lot sales in first quarter. Land and lot sales were $19 million in the fourth quarter.

Other items -- Unallocated items for the first quarter include a net pre-tax gain of $52 million from changes in retiree healthcare benefits and changes of $14 million for impairments, restructuring, and other items. Finally, I would like to remind you, on May 10 we will be holding our annual analysts meeting at the Sofitel in New York City. You can register for this event on our homepage at www.weyerhaeuser.com.

Now, I would like to turn the call over to Dan Fulton. Dan?

Thanks, Kathy, and good morning, everyone. Thanks for joining us.

As I begin, I want to start by reflecting on my remarks from our 2011 year-end earnings call. At that time, when we provided our outlook for the first quarter, we highlighted three major external forces that we believed could affect our 2012 financial performance. One, the pace of housing recovery; two, weakening log demand from China, offset by continuing strong demand from Japan; and three, softness in pulp prices related to high inventories worldwide and economic uncertainty in global markets. We emphasize that we were focused on improvement across all business segments in areas that we can control. Though cautious about economic conditions, we stated we were prepared to flex up to meet increased demand if markets improved more rapidly.

Let me first provide an update on these three external forces. First, housing -- during the first quarter, the signs of improvement in the US housing market, that began to emerge late last year, continued. On our call in early February, I told you that we were basing our 2012 plans on 665,000 total US housing starts -- 445,000 single-family plus 210,000 multi-family. We considered this to be a conservative assumption, and I shared that we were planning cautiously, given the uncertain economic environment, as well as our experience in 2011. I said that once we were further along into the normal Spring selling season, we would have a better idea what to expect for the year. Today is a good time for a status report.

As we approach the end of April, we've seen continued improvement in US housing. As a result, we have increased our forecast for US starts by an additional 8%, from 665,000 to 720,000. The forecast assumes 500,000 single-family and 220,000 multi-family starts. This would be nearly a 20% increase over 2011 levels. The increased sales activity experienced by WRECO and other builders during the first quarter does not have a significant effect on first quarter results for our businesses. This is due to the time lag between new orders, permits, and then starts. The sales activity does, however, provide some indication of what we can expect for the balance of the year for our Timberlands, Wood Products, and Real Estate segments.

Second, Asian markets -- in the fourth quarter, we reported slowing demand from China for logs. We anticipate a continued weakness in Chinese demand in the early part of 2012. However, we expect that the demand from Japan, by far our largest export market, would increase, and it did.

Third, we expressed concerns about softening pulp prices. We felt the effect of this softening in the first quarter. Today, softwood pulp index pricing appears to be stabilizing.

Let me provide some comments about the performance of each of our business segments during the quarter. In Timberlands, harvest volumes were up slightly in both the South and the West, despite some difficult weather conditions in the West. As expected, Chinese demand for logs slowed. Our export volumes shifted to a richer mix of logs to Japan, where we have strong long-term presence, offsetting the decline in Chinese demand.

In Wood Products, performance improved compared with last year, and sequentially as compared with last quarter. We are seeing results from our ongoing improvement efforts across the entire segment. Sales volumes are up year-over-year and quarter-over-quarter. Much of our increased volume is coming from new market initiatives. These include sales in new geographies, increased lumber exports, and increased repair and remodel sales.

Later this year, we should begin to see increased volume for all product lines tied to the improved Spring housing sales I mentioned earlier. Our volume increase resulted in higher operating rates across all product lines, a welcome and much-needed improvement. Higher operating rates reduced per unit manufacturing costs and contributed to our improved profitability.

Though we're still not where we want to be, the combination of these improvements narrowed our operating loss significantly compared with last quarter. In WRECO, closings for the first quarter were slightly lower than one year ago as a result of lower backlog as we entered the year. As Kathy reported, margins through the quarter were lower, primarily as a result of mix. Mix is affected by margin variability across markets, by the relative share of closings from our respective markets, and in some cases, by the relative share of closings from attached and detached product. In the first quarter, we had a higher percentage of closings from lower-margin and lower-priced markets such as Phoenix, as compared with the higher-margin and higher-priced markets of San Diego and Washington, DC.

As both a builder and land developer, the sale of land and lots to other builders is an integral part of our long-term strategy. On average, land sales represent about 10% of our revenue, but the timing of land and lot sales can be a bit uneven throughout the year, as Kathy noted in her comparison of land and lot sales in the first quarter versus the fourth quarter. Earlier this month, we successfully closed the sale of a master plan community in Houston that Patty will discuss in her outlook remarks.

The positive news for WRECO and perhaps for the overall market is that our traffic is up, cancellations are down, and sales per community increased by 32%. The result was a 30% increase in first quarter sales over last year. Sales increases during the quarter were the strongest in Arizona, Las Vegas, Puget Sound, and Houston; and weakest in Southern California. This increase in sales resulted in an encouraging increase in our backlog, up 27% compared with one year ago, and up 80% from year-end.

In Cellulose Fibers, we expected a significant decline in earnings compared to the fourth quarter as a result of lower prices and expense related to scheduled annual maintenance shutdowns. During the quarter, our mills ran well and came up on time after our scheduled annual shutdowns. The shutdowns were successfully conducted with no recordable safety incidents. Some of the work accomplished during these scheduled shutdowns will help us move towards our goal of increasing the length of time between major shutdowns to 18 months, rather than every 12 months. This transition will occur over a several year period. As we enter the second quarter, worldwide inventory levels have fallen to more normal levels and prices are increasing.

Now I'll turn the call over to Patty to discuss second quarter outlook, as well as provide financial highlights.

Thanks, Dan, and good morning, everybody.

We expect improved operating results from each of our business segments in the second quarter as compared to the first. The outlook for the second quarter, by business segment, is summarized on chart 11. I'll begin the outlook discussion with Timberlands. Beginning in the West, export volumes are expected to be flat to the first quarter with realizations softening only slightly. China markets are not anticipated to improve until the second half of this year, and Japan market realizations could be slightly lower in the second quarter, due to ongoing competitive pressure from European supply, as a result of a weaker euro compared to the yen. Domestically in the West, sales volumes and prices should increase compared to the first quarter, resulting from a slight seasonal pickup in demand.

We expect Western fee harvest volumes to increase approximately 5% to 10% compared to the first quarter. In the South, log realizations are anticipated to be flat, and fee harvest volumes are expected to increase approximately 5% as a result of seasonal demand. We anticipate a seasonal increase in silvicultural costs in both the West and South, and fuel costs are expected to remain high. Overall, we estimate that earnings in the Timberlands segment will be approximately 10% higher in the second quarter compared to the first.

In Wood Products, we expect increased revenue in the second quarter compared to the first. Volumes are anticipated to increase approximately 10%. Average sales realizations in lumber are estimated to be approximately 5% higher. Realizations in our other product lines are mixed, but could be somewhat softer in the second quarter compared to the first, if the price trends of last year repeat, although OSB realizations thus far in the quarter are stronger than in Q1.

Overall log costs are expected to increase slightly during the quarter. Log costs in the West and Canada should be higher, but modestly lower in the South. Manufacturing costs are estimated to be lower, due to improved operating rates. Freight spending will increase due to higher shipment volumes and increased fuel costs. We expect continuing improvement in our operating results in the second quarter compared to the first quarter. We anticipate approximately breakeven performance for the second quarter. Given these expected results, Wood Products would generate around $30 million of EBITDA. While the performance in this segment is not yet where we expect it to be, breakeven is a significant improvement over the $53 million operating loss we incurred in the second quarter of 2011.

In Cellulose Fibers, average sales realizations for pulp are anticipated to increase modestly in the second quarter compared to the first, due to improving market conditions and tightening supply. Worldwide inventory levels have decreased due to significant shipments to China and spring annual maintenance shuts. As of the end of the first quarter, the supply of softwood inventory stood at a low of 29 days. Maintenance expense is estimated to increase in the second quarter, due to some carryover expenses from the two mills which had annual maintenance shuts in the first quarter. In addition, we will have similar scheduled maintenance costs for the mills scheduled for their annual shuts in the second quarter. Outages this year are slightly longer than typical in order to complete capital projects focused on cost reduction and to position the mills to begin the process of transitioning to an 18-month frequency in planned maintenance outages, as Dan mentioned. We expect overall earnings in our Cellulose Fibers segment to be approximately 10% higher in the second quarter compared to the first.

Moving onto our Real Estate business -- as Dan discussed, we continue to see slowly improving housing demands. Closings in our single-family homebuilding business are expected to improve by over 30%, from 349 closings in the first quarter to approximately 460 in the second quarter. This increase reflects a normal seasonal pickup, in addition to the slightly improved market. Average prices are estimated to decline approximately 4% due to mix, while gross margins are expected to increase slightly, but remain under 20%. Selling expenses will increase with the additional closing volumes.

Earlier this month, we closed on the sale of a large land parcel in the Houston area, known as Cross Creek Ranch. The sales price for this transaction was $100 million and it is expected to contribute about $10 million to earnings in the second quarter. Including the earnings from this sale, we expect that our real estate segment will generate a slight profit in the second quarter.

I'll wrap up with some overall Company financial comments. Please turn to chart 12 for this discussion. We ended the quarter with a cash balance of almost $730 million. Cash from operations in the first quarter was negative $60 million. This reflects increased working capital of $148 million in our Forest Products businesses for the typical seasonal working capital build, primarily in our Wood Products and Timberlands businesses. In addition, the first quarter included the cost of scheduled annual maintenance in our Cellulose Fibers business. The first quarter was also the seasonally weakest quarter of the year for our real estate business as compared to the fourth quarter, which is typically our strong was quarter for cash generation.

Capital expenditures for the first quarter were $64 million. We expect spending to increase in the second quarter compared to the first. Major projects with second quarter spending include a pulp converting facility in Poland, a fiber line upgrade in our pulp mill in Columbus, Mississippi, and an evaporator upgrade at our pulp mill in Grand Prairie, Alberta, Canada. We expect capital spending, including reforestation, to be around $290 million for the full-year.

Our near-term debt maturities for the next five years are also shown on chart 12. As you can see, we have total maturities of approximately $610 million, well below our existing cash balance. In addition, we have a four-year credit facility for $1 billion with no borrowings outstanding. We continue to focus on controlling costs across the Company. This includes a relentless effort to lower our SG&A costs. As shown in our income statement, SG&A in the first quarter of last year was $172 million compared to $150 million this year, a reduction of $22 million. This emphasis on cost reduction should result in even greater leverage as we begin to experience a housing recovery.

I'll turn the call back to Dan and I look forward to your questions. Dan?

Thanks, Patty.

In summary, we're encouraged by our performance during the quarter. We continue to focus on improving our financial results with current market conditions. The performance of our Wood Products segment during the quarter is evidence of this progress. The increasing housing demand that we are now experiencing, if sustained, will give us the opportunity to flex up to meet profitable demand in our Timberlands, Wood Products, and Real Estate segments, by increasing harvest levels, Wood Products production, and home construction.

Continued firming of pulp pricing will position us for improving results from our Cellulose Fibers segment. We remain committed to safely improving our overall performance, and we're well-positioned to take full advantage of opportunities that emerge from an improving market.

Now, we welcome your questions.

Nicole, would you please open the call for questions?

(Operator Instructions) George Staphos, BofA Merrill Lynch.

Appreciate all the additional details. My first question's around chart 10 and WRECO and it's encouraging to, obviously the lower cancellation rates, the buyer traffic picking up. One of the interesting data points here is the price in your backlog, which has been trending lower. My question here is, how much of this is a cyclical from what you see, Dan, or are there any secular implications that we should take away from the declining price in the backlog that could impede the recovery, ultimately, in WRECO in profitability when we finally see more and more closings and starts?

The primary reason for the decline in the price of backlog, George, is answered by mix. As I mentioned in my remarks, we have mix issues across our various markets. We have higher priced product, for instance, in San Diego and the Washington, DC area, lower-priced product in places like Phoenix. What we've seen over the last three to six months, that is reflected in our backlog, is a recovery in sales in some of those lower-priced markets ahead of what we are longer-term expecting coming from, let's say, Southern California. We had a very significant increase in activity for instance in Arizona, not just in the last quarter, but really going back probably six months. Arizona, generally, is a lower-priced market, those are lower margins, and so, that's also impacting our margins. It is more of a mix issue.

We also had, for instance, in Washington DC, which is a higher priced market, a period of time where we had a heavier shift to multifamily. We're in some larger master planned communities. For example, in some of those master plans, we have a requirement to build affordable housing. Part of the entitlement process, those are lower-priced units and so that would affect both the margin that you see falling, as well as sale price. It is more a function of where the homes are and, for instance, in some markets, we are beginning to be able to pass through price increases. I think that most of the price decline due to the softness of the market is behind us and there'll be some choppiness as mix shifts as we come out of this. We'll try to keep you informed so that there's no surprises.

Okay. The related question, then I have one last follow-on, would it be fair to say then, given the ultimate lag in trends and how they'll materialize in your performance the recent improvement in pricing, that you could see single-family margins more or less close to where they were last year in the back half? Should we ultimately get to better than breakeven, better than marginal loss in WRECO in the second half in single-family? The second question I had, totally different topic, in terms of Cellulose Fibers, relative to the rest of your portfolio and what you're trying to build within Weyerhaeuser, it's obvious that you've done a great job of improving the returns here, but it still remains a very cyclical and capital intensive business. From where you sit right now, why do you think that Cellulose Fiber is still a good business to maintain the portfolio for Weyerhaeuser for your shareholders? Thanks, and good luck in the quarter.

Thanks, George. To your question of WRECO and the balance of the year -- yes, we will return to profitability. What happens in the first quarter is that it is our lowest quarter for closings and so we end up in a loss position, fundamentally, because of G&A. As the volume picks up through the year, then you'll see us break into profitability, as Patty mentioned. We expect to be profitable in the second quarter and then through the balance of the year, we'll be delivering the homes that we had sold earlier in the year, so we'll have the margins from those sales come through the P&L. We would certainly expect that to recover. In terms of what the margins may be in the balance of the year, we have good visibility today for second quarter margins.

It gets a little bit fuzzier as we look at third and fourth quarter because some of the closings there will occur in third and fourth quarter will be from sales that we haven't even entered into yet. With respect to Cellulose Fibers and your portfolio question, we believe that the Cellulose Fibers business is a good fit for our portfolio. We are a strong competitor in the fluff business, in particular, where we have very strong relationships with the growing global customers. What the Cellulose Fibers business does for us is it gives us really terrific global exposure, because roughly two-thirds of our sales are for customers outside of the US. We believe long-term trends for demand for fluff are very positive and the relationships that we are building with our customers that are growing, give us confidence that we will be able to maintain profitability and grow with them. Patty mentioned when she was talking about projects that we're spending money on this year in our CapEx, the Poland facility. That's a conversion facility that will give us increased product to sell to key global customers as they expand into Europe and North Africa. We believe that we're a strong competitor in that business and it's a good fit for us.

Thank you, Dan.

Gail Glazerman, UBS.

Can you talk a little bit more about the West Coast export markets and just the level of trend? Was it getting worse as you move through the first quarter? Was it picking up in terms of the Chinese market particularly? Are there any numbers you can put through it terms in the change in your export volumes to China?

You were breaking up at the very end of your question, Gail, could I just ask you to --

Sure, the last part was, are there any numbers you can put to in terms of the change in your volume to China either year-over-year or sequentially? Just generally, give a context on what the trends were like moving through the quarter into the second quarter?

Our overall export volumes were slightly off in the first quarter as compared to the fourth quarter; that's fundamentally a China statement. As I mentioned, we had a significant slowdown in exports to China starting in the fourth quarter, continuing to the first quarter and that caused a shift in mix. In very round numbers, about 80% of our export volume went to Japan, 10% Korea, slightly more than 10% going to China. If I were to go back to the fourth quarter, those numbers were mid-60%s for Japan, China had actually grown to be 25% of our export volume. We are returning to more typical mix. Our long-term market continues to be Japan. Those are higher quality logs.

That's our most valuable resource that we're exporting off of the West Coast and we see that demand continuing to be steady and it has been growing. We are well-positioned to sell into the China market as we did last year, because of the location of our lands and the logistically advantaged facilities that we have to ship off the West Coast. Longer-term, we continue to expect export to be a significant part of our activity. Off the West Coast, Japan will continue to be our major market. But we will take advantage of opportunities to serve longer-term customers in Korea, to build market share in China, and also, to take advantage of opportunities that are beginning to emerge in some other export markets beyond those Big Three.

Gail, to your specific question about in the first quarter, we saw, coming out of the fourth quarter a lot of inventory in China and into the first quarter. Some of that was also due to some of the Chinese government policy, which we are starting to see some signs of monetary easing by the Chinese government. That's encouraging. In terms of the impact going into the second quarter, we don't see a lot of pickup, but we see some of that inventory being worked off. That's why, in my comments, I focused primarily on the second half of the year in terms of the resurgence of Chinese demand. We don't see a lot of that impact of it happening in the second quarter, but rather that inventories continue to be worked down.

Okay. Will those comments hold generally for the lumber experts? I think you have some exposure to that out of Canada, going into China. If so, is there any risk where you're seeing signs of some of that being repatriated?

I'm sorry. I'm going to have to ask you to ask that question one more time, please.

Sure, do those comments hold for lumber as well? If so, are you seeing any signs of volumes that might have gone to China previously being repatriated in North America?

We've been shipping some lumber to China out of Canada and actually, on a year-over-year basis, our export volume to China out of Canada roughly doubled. As you know, the wood that goes to China is used for industrial purposes, concrete forms and packing and crating, at least as it relates to softwood. The Chinese government did impose credit controls to try to slow down growth, to try to slow down some real estate development. We would expect that activity to start to recover. We'll continue to take advantage of that opportunity as it exists. In our lumber business, out of Canada, once again, our primary customer has been Japan and that's a higher quality wood than is going to China, but we'll take advantage of the opportunities as they present themselves. In our Wood Products business, we are exporting lumber. We are also starting to export some amount of OSB and engineered products into Asia also.

Gail, I really think as it relates to our lumber export, as Dan said, similar to logs, Japan is a much more important market for us. Because most of our lumber production comes out of Alberta, it's not as affected by the beetle-damaged wood as some of the other producers. We produced and export more to Japan of a higher J-grade than probably other producers that you might be hearing from.

Okay. Just two quick ones -- the guidance for Timberlands in the quarter, does that include land sales or would land sales be additive or subtractive to that?

We don't forecast land sales because they are lumpy. But I can tell you based upon what we see right now, that we wouldn't see a big difference in the second quarter compared to the first. But, as we've talked about in the past, that can move around. But as we sit here today, it doesn't make a big difference quarter-over-quarter.

Okay. Patty, is there any guidance for the Unallocated items? I think in the past, you had talked about maybe $80 million for the year. You're well below that in the first quarter. Would you expect that to normalize or is there any change structurally, there?

What we tried to do on that chart 13 was really give you what really makes up that. As you think about walking down that chart, the Unallocated corporate functional expenses, I wouldn't see that changing significantly throughout the year in terms of the quarter impact. The Unallocated share-based comp does move around because that's tied to, for the most part, the volatility in our stock price. Pension and post-retirement costs, probably pretty stable. Foreign exchange gains, that's a result of changes in, primarily, the Canadian dollar on our intercompany borrowings.

Those would be the primary items as you think about -- as the foreign exchange Canadian dollar, if that moves around, that will impact that number. Just roughly, I would say probably a $0.01 change makes about a $3 million-ish, give or take and also, it's a function of the currency fluctuation, as well as the level of borrowings, intercompany, how that goes through quarter-to-quarter. Then on share-based comp, probably about a $1 movement in the stock price is roughly $1.5 million to $2 million. Maybe that will help you calibrate throughout the quarter.

Okay. Just that other segment? Because that was a pretty big swing quarter-on-quarter within that.

Yes, that's just really made up of a bunch of little things. There's a whole list of, that's why we didn't call out anything separately, there. Other is a bunch of one or two million unique items quarter-over-quarter.

Okay. But is the fourth quarter kind of a more normal number or is it just completely random?

It's kind of random. I would say it's probably somewhere between that $2 million and $7 million number.

Okay. Very helpful. Thank you.

Mark Connelly, CLSA.

This is Kurt Schoen filling in for Mark. You noted earlier that there was a pickup in the lower priced housing market, which also happened to be the hardest hit markets. Given your heavy exposure there, do you expect your housing segment to recover quicker than the overall industry? Will this dynamic alter your allocation of resources or strategy going forward?

I don't expect that it changes our strategy long-term. What we're seeing is housing is a regional business and we do have different value propositions in each market. I talked about the recovery in demand, in particular in Arizona; that happens to be a market that has good positive employment growth. I think on the last call, I noted that last year, there were nearly 100,000 housing transactions in the Phoenix market. That market seems to have recovered, just as we're starting to see some recovery in Florida. We're not an active builder there, but investors have come in and have picked up excess inventory and so the market is now starting to recover. The lower-priced markets where we operate, Phoenix, we're seeing strong recovery.

I noted Las Vegas in my comments; Las Vegas is coming off of a very (technical difficulties), but we did see a pickup on a year-over-year basis. Sales in Las Vegas (technical difficulties) transactions are starting to occur. We had two new openings in Las Vegas, actually higher priced product, that sold very well. It's not simply people that are looking for foreclosed homes that are buying homes. The markets are starting to recover. I don't expect our strategy to change in any of our given markets. We will allocate capital in order to provide lots to be able to build those homes on a market-by-market basis. But I don't see any significant shift longer-term for us in our value propositions in markets or in the longer-term mix of selling homes.

Thank you very much.

Mark Wilde, Deutsche Bank.

Just curious, Dan and Patty, as you think about a housing upturn and how will it affect your different Wood Products businesses, can you help us think about where you think you have the greatest leverage to increase volumes in wood products?

Yes. Our primary products in our Wood Products business are lumber and OSB and engineered wood products, which we split between our TJIs and our solid sections. Lumber has, throughout the cycle, maintained a somewhat higher operating rate because there are multiple of outlets for lumber. As we see the market pickup for housing, you would expect to see lumber pickup along with the appropriate level of starts. OSB is a product that is more heavily weighted to new construction, but we have some industrial uses and we've been expanding our activity in the R&R market. As you see a pickup in activity, that should translate very quickly into OSB. That has had a somewhat lower operating rate than lumber, because we've had fewer outlets for that product. In the engineered business, our TJIs and solid sections, that's fundamentally a new construction product; either for single-family or multi-family.

That probably has the most significant immediate impact as the activity picks up either for singles or multis. That product goes into both and so we have the most leverage on the upside coming from that business, because we've got the lowest operating rates today, Mark, in that product line. There's still an issue out there as to the mix between singles and multis and what the appropriate square footage's are for each of those. But, I think the most significant upside in those three product lines, in a pickup in housing, would be seen in the engineered business because we've got the lowest operating rates and so much more ability to increase production there. But you'll see it in all product lines.

Okay. All right. Maybe when you're out here, I would like to get a little update on what your looking products distribution business looks like right now, because I know you've made a lot of changes. Couple of other questions for today, though -- can you give us, Dan, sort of a rule of thumb in your real estate business about profit that you make from homebuilding versus profit that you make from the gain on the underlying land?

I can't do that because it varies by market and by project. Let me give you an example, Mark. Probably the two extremes would be Houston, Texas, where, historically, we have purchased optioned lots from land developers, so, fundamentally, the primary profit in margin that you see in Houston comes from homebuilding. We do, as you know, have some land development activity down there, but roughly two-thirds of our homes in Houston are built on lots that we purchased from others. The other extreme would be San Diego, where we've got a long land position in a market that is very difficult to obtain entitlements and that's the nature of why we have a longer land position there. The margins that come from our San Diego homes are a lot higher and clearly, there's a significant component of that, that relates to the land. But I can't give you a rule of thumb across all markets because every market is different and quite frankly, every project has some unique history to it as to who owned the land and how long it was owned and whether was ours or someone else's.

Okay. The last question I had, Dan, was just on offshore Timberlands, I noticed the pricing continues to be pretty low down there in Uruguay. I'm just curious as to whether that's because that's timber that doesn't have a whole lot of outlets right now? I'm also interested in whether you want to expand offshore timber, whether it's more in South America or more, maybe, over in Asia?

Our offshore timber is really located in two markets, as you know. Uruguay is our largest position, we have roughly 345,000 acres. And then we've got a small joint venture in Fujian Province in southern China, that is about a 50,000-acre partnership. We are growing out the Timberland in Uruguay. We started with range land and planted it. It is now moving to a stage of harvest maturity. We're growing primarily to a soft timber regime in that market.

We have one manufacturing facility, it's a plywood mill that we built where we are producing plywood and I think it is an area of the world, quite frankly, that could use some more conversion facilities in order to monetize the timber that is growing there. We are well-situated with our plywood mill. We've seen some improvement in performance out of that. That mill originally was built with the thought that the market would primarily be southeastern US and it's turned out, because of the US housing downturn, most of that product is being sold throughout South America, and increasingly Mexico, with some outlet into Europe for higher-grade tropical panel replacement. That's all the color that I can add. At this point, in terms of expanding Timberland's ownership, our focus is US. It's not global for a variety of reasons. We know the US the best and the US is one of the few markets in the world where you can own the fee, which is important.

Okay, great. Thanks for the better disclosure this quarter, by the way.

Chip Dillon, Vertical Research.

When you look at the progression of southern fee harvest levels, they just go up and you mentioned they're going to go up in the second quarter. But I just noticed they went up every quarter last year and further in the first quarter. I know, obviously, from years past, you talked about having greater ability or greater growth that you would harvest in the future, but it's up roughly 25% year-over-year and with more to come. I would like to know what's driving that and how we should think about the harvest there going forward?

Prices have been relatively steady in that marketplace. We made a conscious decision, Chip, to increase the amount of third-party sales. That was a market where, historically, most of the logs went to our own mills. We felt that we needed and wanted some diversification and so we've consciously increased sales to third parties there, roughly 20% to 25% of our southern harvest. Then this year, with increasing lumber prices and some recovery in US housing, we are flowing more of those logs to our own conversion facilities to take advantage of the increased activity or increased prices in lumber. It's been a conscious decision on our part to increase harvest because we have profitable outlets for the logs.

Got you. On just the tax rate, if your forecast is, as you've given us the numbers, is roughly correct and maybe you mentioned this and I missed it, what should the tax rate be in the quarter? What would be your range that you would use for the year? I know it is a moving part based on how much Timberland contributes, but is there any kind of rule of thumb you can give us?

Sure, Chip. Let me maybe walk through a couple of things that could help you as you go forward. As you mentioned, it is sensitive to the mix of REIT income versus TRS income and of course, we don't provide for any corporate tax on the REIT income. As you think about the TRS income, which is primarily the income from our manufacturing businesses, Cellulose Fibers, Wood Products, and our WRECO subsidiary, but also remember that the interest expense is at the TRS as well. As we look forward for this year for the rate on the TRS results, we are looking at an effective rate of about 25%. If you look at the first quarter, now these are just broad rules of thumb, but if you looked at the first quarter and said, take the contribution to pre-tax earnings and exclude the special items, and then take away the Timberland earnings and take away the interest expense, you'd get a TRS loss of about $83 million.

Then again, if you exclude out of the tax benefit the impact of the special items, which you can get from chart 2 in the package, you'll get about a 25% rate for the first quarter and we would see that 25% rate being the effective rate for the year. Again, depending upon what the ultimate mix of income is. That 25% is lower than what the US statutory rate is, because of the mix of US versus non-US earnings.

If I heard you correctly, basically the REIT income, the Timberland segment income is fully non-taxable and in other words, all of the expenses, whether it be Unallocated or interest, will be almost all allocated to the TRS?

Yes, so all of the interest expense is at the TRS. As a relates to Timberland results, there are pieces in both, but most of the Timberland income is at the REIT level. Just as a broad rule of thumb, if you take the Timberland income away, you get pretty close.

Got you, so there should be probably no tax expense in the next quarter, then?

There will be any cash taxes, if that's what you mean.

Okay, we'll work the numbers. Thanks.

Anthony Pettinari, Citigroup.

A follow-up to Gail's question on China -- understanding that we've seen slow activity in the first quarter and you expect some pickup in the second half of the year, when you look at the full year 2012, would you expect Chinese log and lumber imports to be up year-over-year or down or roughly flattish or how should we think about that?

At this point, I don't think we have enough visibility, Anthony, regarding the second half. All of our intelligence suggests that it should be picking up in the second half. 2011 was such a strong year in terms of exports to China, I would be surprised if our volume would, for the full year, be equivalent to what it was in 2011, but I really can't speculate.

Okay, okay, that's helpful. You talked about other export markets or cultivating markets outside of Japan, China, Korea. Can you talk a little bit about that or give some color there? I know that some of your competitors have maybe talked about exporting out of the South into the Mediterranean and the Middle East. Do you have plans there or is there any kind of opportunity that you can give us details on?

I don't have specifics that would provide a lot of guidance for you. We are exploring opportunities for other markets in Asia, both off the West Coast and to some extent, out of the South. We are engaged in some initial activity in shipments into the Mediterranean from the US, south, not only for logs, but to a limited extent, to lumber. We are exploring opportunities both from the West and the South. We've never been really an exporter out of the South. We're very limited, but we are finding some opportunity, given that we are growing high-quality saw logs and southern yellow pine and given the size and nature of the clear wood in those logs, they become attractive for some other markets. Not enough specific to give you much help, but we are, in fact, we've got some pilot activity both in other countries in Asia, as well as in Europe.

Okay. Thank you.

Steve Chercover, D.A. Davidson.

First of all, I appreciate the color on China log volumes. Do have a longer-term view on the opportunity? Could it be a 10 billion square foot or board foot market on a sustainable basis, maybe in five years or so?

I can't speculate. We do see growing demand. If you just look at their GDP, they are going to need fiber for a lot of purposes. The big breakthrough for China would be if we started to see some increased activity in wood frame construction. The Canadian Wood Products Council has been leading that initiative for some period of time and that would be very significant if that were to occur. We expect the activity to increase over time. They also pull logs from New Zealand, Russia, we talk about it a lot, it's a question. But the West Coast is very well-situated to supply China and we would expect that, given the growth over time, it'll become a more significant market for all of us in North America.

Okay, thanks. Switching gears, it occurs to me that multi-family residential is going to lead the housing recovery, not just because of government mandates. Are you in a position to build multi-family yourself or do you sell the land to builders with more expertise in that area?

Multi-family is a broad category, so, it captures attached housing, generally; some of which is for sale and some of which is rental. We build a limited amount of multifamily in primarily townhouse structures. We've always been active in the Washington, DC market, for instance, and in Maryland and Virginia, we build townhomes. We have the ability to build multifamily. We've done it in the past. We are not an apartment developer, but we have the ability and have, in the past built, for-sale attached housing that would be low-rise.

Generally, when we have land in the master planned community, we sell it to a multi-family developer. When we report land sales, in some cases, we had some last year, we're selling to apartment developers. For our business model, we prefer for-sale housing rather than rental. That would be a significant change for us to jump into that business. Actually, I'm more bullish on single-family starting to show some recovery.

I hope you're right. You referred to TJIs a couple times, Dan, as opposed to eye-level. Is this a reversal in the brand strategy or are you just calling them what the market calls them?

That's a strategy that we reversed last year. We had been going to market under the umbrella of eye-level for all of our Wood Products and last year, we made a determination to revert to our strongest brand, which is Weyerhaeuser. The Truss Joist Brand, in the marketplace, everyone calls them TJIs, even if they're not ours, probably. I think we've the leading brand in the business and we're building on that and taking advantage of it. We're going to market under the Weyerhaeuser name and under the Truss Joist name because we believe that's our strength and that's the reputation and quite frankly, our customers tell us that's what they prefer.

I think that's true, I think TJIs are like Kleenex and xerox. That is what people call them. Okay. Thank you.

Mark Weintraub, Buckingham Research.

Pulp maintenance expense, if you could just tell us what it was in the first quarter? I think you said it'd be fairly similar in the second quarter. Then does it pretty much go away in the third and fourth quarters for this year?

We will have a similar amount of maintenance in terms of costs compared to the first quarter, with the exception of a couple of the mills; one which had a, in their maintenance shut that carried over into the second quarter for a day or two and then one of our mills, we're actually finishing up some power boiler expense. The mill is up and running, but we're finishing up some maintenance there. I would expect that quarter-over-quarter, we'll be up in maintenance somewhere around $5 million to $10 million, probably closer to $5 million, when you look at quarter-over-quarter. In terms of the total maintenance in the first quarter for Cellulose Fibers, I think we were somewhere around low $20s for maintenance costs and then you have to add on top of that the lost productivity, a little bit of additional chemicals et cetera. I don't have the exact number for that, Mark.

Okay. Do you have any maintenance scheduled for the second half of the year?

Yes. We'll have a similar amount of maintenance in the second quarter and we had two mills down in the first. About similar in the second quarter to the first quarter. We'll have some maintenance, but it'll be much less in the second half. Most of it will be done in the first half.

Joshua Barber, Stifel Nicolaus.

Can you talk a little bit more about your pulp mill capital projects to get the maintenance downtime a little bit more extended? I know you said that was the reason for some more prolonged shutdowns this year. Is that actually anticipated to be completed by the end of the year and 2013 will have that extended maintenance schedule or is that more of a 2014 event?

The transition to that extended schedule will take place over likely a two to three-year period. The scheduled annual maintenance that we have today is not focused on that transition. It is normal maintenance that we need to do for the safety and longevity of our equipment. But we are taking advantage of those annual shutdowns in order to make some incremental changes and improvements that would allow us to accomplish this transition. It'll be a two to three-year period.

Okay. You mentioned in your prepared comments that you had seen volumes picking up, that Japan might be a little bit weaker in the second quarter. Was that just the Japanese economy getting a little bit better or is that a post-earthquake rebuild or maybe some combination of the two? Thanks.

As it relates to what's happening in Japan, we saw an increasing amount of activity late in the year and first quarter was relatively steady. We expect Japan to maintain, perhaps pick up a bit. We're not seeing any significant earthquake rebuild activity that's driving increased volumes. Some of that may be happening, but it's not obvious to us. We anticipated that the rebuild would take some period of time because of the need to initially rebuild infrastructure. The initial response in Japan was focused on temporary housing. That's been accomplished.

That was mostly modular and there was some amount of wood product involved in that, but not significant amounts. The areas that were most hard hit by the tsunami and earthquake were rural and not heavily populated. Most of the rebuild activity will be longer-term and we expect not to see anything like we did, Josh, in response to the Kobe earthquake, which was a heavily urbanized area and a lot of rebuilding had to take place over a two to three-year period. I'm sure it adds some incremental volume over time, but it's not terribly significant.

Josh, just to be clear in terms of the second quarter outlook, we said that volumes would be pretty much flat. It's just the realizations, we said, that might soften somewhat and that's really more of a currency statement in terms of competitive pressure from European supply because of the weaker euro. Our volumes to Japan should be very stable in the second quarter.

That's helpful. Thanks very much.

Paul Quinn, RBC Capital Markets.

Just a follow-up on the earlier question on price declines in your backlogs of WRECO. That's consistent with smaller home sizing, lower percentage of single-family houses, and less bells and whistles on houses overall. The question is, do you see that is a cyclical or structural shift in the market?

The mix shift that we're seeing is primarily related to geography, Paul. We've been through a period where, over the last two or three years, we had some decline in square footage and certainly, a lot of the upgrades have disappeared from these homes. But interestingly, in a market-by-market basis, we're seeing some increased activity in higher priced homes. In Phoenix, where we've had terrific sales, we are not a first-time buyer product there. We sell first-time move ups, second-time move ups. In the Puget Sound area, our quadrant operation has actually moved its price point up and is providing really a higher quality, more amenitized house than they were four or five years ago. Our most recent openings in Las Vegas have been higher priced homes, four car garage, price range $350,000 to $400,000, plus or minus.

That's not to say that is happening everywhere, but in our own mix, the primary factor ends up being where that house is and where the sales are occurring as we start to look at the relative percentage of where our sales are coming from or where the closings are coming from in any one period, we've seen that shift. Plus or minus 5% of total closings, we saw on a quarter-over-quarter basis, a percentage of our closings drop by the 5% in San Diego, went up 5% in Phoenix. Those kinds of shifts will be enough to throw off the weighted average of either margin or price. It gets a little bit complicated to have a broad brush explanation for what's going on. We are not seeing a rush to the bottom in terms of price or removing amenities. In fact, I think what's happening, now, is there have been a lot of foreclosed houses on the market, people that are coming into new home sales offices are looking for a home that is more customized, that probably has more features and it meets their needs much more closely than trying to buy a foreclosed house either from a bank or at an auction. We view that as being very positive.

Pretty interesting answer. Just last question on Japan housing and your leverage there. If I take a look at housing stats, they're down 8.1% annually over the last five years. Wooden, it's help up a lot better, down 3.5%. Are you guys taking market share with your growing export to Japan?

Can you restate the question? I don't think I understood.

If I look at Japanese housing starts, I see a downtrend over the last five years. I would say wooden starts have held up a lot better. Your business seems to be holding pretty steady. That suggests that you're taking market share, have I got that right?

I believe our customers are taking market share.

Fair enough. That's all I had.

As you think about who we export to, Paul, we're exporting, most of our product is export of logs and certainly, our customers in Japan, especially our largest customers, are taking market share.

Let me just provide one minute of wrap up comments here. I want to thank everybody for your questions and your comments. Patty mentioned that we have our New York analyst meeting coming up. It's just less than two weeks away and so we hope that we'll see you there. If you have questions following this call, I encourage you to follow up with Kathy. Finally, I thank all of you for taking the time to join us this morning and for your continued interest in Weyerhaeuser Company.

Thank you.

Thank you for participating in today's conference call. You may now disconnect.